Kap: Fewer meaty issues

Johannesburg - Industrial company Kap International Holdings has decided to throw in the towel regarding its fresh meat processing division due to poor returns and lower retail spending.

"A decision has now been taken to discontinue this division through the realisation of its assets to the best advantage of the company," says Kap in a statement on Tuesday.

The company first notified the market of its intention to "rationalise" its operations in December, saying it was working towards improving long-term returns and generating more cash.

The fresh meat division, housed under the Bull Brand division, has now been identified as "not generating satisfactory returns". Kap seeks to release "a substantial amount" of capital from the division to lower its debt-equity ratio and so achieve a lower financial risk profile.

Kap's interest-bearing debt-equity ratio in June 2008 was 39.7%, down from 43.3% a year earlier.

The company had initially wanted to raise about R300m in cash through a rights offer, but shelved the idea in December after deciding it had improved its working capital management and no longer needed the rights offer.

In addition, it said the capacity expansion at the Hosaf polyethylene terephthalate resin manufacturing facility was nearing completion, with most of the related capital expenditure already incurred.

Kap has made it clear that Bull Brand will not be affected by the move. "The Bull Brand cannery, which houses the brands for which Bull Brand is known, will remain unaffected and will continue to generate good returns," says Kap.

Canning fresh meat operations

Bull Brand provides premium canned beef meals to the local, African and European markets, but also has a portfolio of lesser-known brands such as Spekenham, Gants and Apex labels.

The division's unwieldiness could be observed in the full-year results to June 2008, when R2.2bn revenue only produced R90.5m operating profit.

What Kap is getting rid of is the range of fresh beef, lamb, sheep and pork products. In addition to those, products on the convenience end of the food chain like Cowboy King burgers as well as biltong, salami and dry meat snacks will go with the fresh meat division, leaving only the canned food in the mini-conglomerate's consumer division.

Most of the products were being processed, packaged and canned from Kap's Potchefstroom premises in North West Province, and the Krugersdorp and Magaliesburg premises in Gauteng.

The decision to discontinue the fresh meat division means the abattoir, retail and wholesale properties will be sold. Kap says in its website that these premises were only one of two SA meat exporters to meet European Union specifications and accreditation.

The "rationalisation" of Kap's consumer products division is also an attempt to move away from direct retail consumer goods, as those are the most affected by the economic slowdown.

Effects of the slowdown are also apparent in the trading update Kap issued with the meat division announcement, in which the firm says it expects earnings to be up to 84% lower in the interim period to December. The 12.6c/share Kap earned in the 2007 half-year would translate to a loss of 2.01c/share this time around.

- Fin24.com